What are the private sector skills outsourcing companies bring to the public sector other than a) slash pay; b) hike costs

The graph below from a report by the Good Work Commission shows that it is not just unskilled occupations that are in decline. 

People who invested in their skills as traders and as machine and transport operators are also losing their jobs.

One result of the drop in demand for certain occupations is an excess in supply of workers for those jobs, driving pay downward.

This is a key driver of ‘outsourcing’. Organisations find themselves contractually and morally unable to slash the wages of their own staff, so they outsource all the unpleasantness. Which, ironically, can also help the organisations claim to be ‘good employers’, by getting rid of employees they were being ‘bad’ to.

Evidence of this comes out of the London Borough of Barnet. The turnover of staff in lower paid jobs tends to be high. The CIPD (Chartered Institute of Professional Development) says:

"Turnover levels can vary widely between occupations and industries. The highest levels are typically found in retailing, hotels, catering and leisure, call centres and among other lower paid private sector services groups."

Outsourcers take comfort from this, knowing that even if they do take on people on higher-low-pay from their client, most of these transferred staff will soon leave to be replaced by new workers on low-low-pay. When Barnet outsourced parking to NSL in May 2012, 70% of the workforce had left within two years. Barnet pay rates were rapidly migrating to lower NSL pay rates. John Burgess, Branch Secretary of Barnet Unison, told us:

“When I submitted a London Living Wage claim NSL told me to go back to the Council. Which was odd. I have and they say they will not insist the LLW is adopted by contractors. In the same breadth the Leader said that “workers should have a wage they can live on if they work for us”. Very clever, because they keep outsourcing services and so it is ok for contractors delivering public services on behalf of the council to be paid poverty wages”

Barnet proudly boasts a “Barnet Living Wage”, having excluded those of its staff it handed over to the tender mercies of the outsourcers. On the London Borough of Barnet website it states:

“The council is implementing a minimum wage rate for all employees. This will be known as the Barnet Living Wage and is set at £8.80 per hour worked. This is currently the same as the London Living Wage and will be paid between 1 October 2013 and 31 March 2015. The Council’s minimum wage rate will then be decided on an annual basis following this initial 18 month period.“

Another group of former Barnet employees have also been mugged in this way. Barnet outsourced its care services to The Fremantle Trust (motto "Passionate about Care"). According to Unison's John Burgess

“Apparently there are still 85 (out 250) workers who still have ex Barnet council hourly rates and it is these they want to cut. They also want to extend their working week from 36 to 39 hours a week. As I said before these workers already took a massive cut five years ago which meant we had care workers fighting to work 12 hour back to back shifts to make up pay cuts. There is already a culture where our members are doubling up on care work with other companies to make up for the cuts. I shudder to think what they will have to do to cope with this final cut.”

The astonishingly grisly details were delivered to the former London Borough of Barnet (LBB) staff in a letter from Fremantle dated 23rd January 2014:

 

A cut of up to 36% to people already on low wages, in order to boost Fremantle's "balances" (Fremantle has Charitable status, and so doesn't make "profit"), will surely push these staff onto benefits. Whatever you call it, money is diverted from low paid staff into the coffers of Fremantle. With taxpayer funded benefits subsidising Fremantle's low pay policy.

The profiteering outsourcer attitude to public sector work is not just about cutting staff pay. This was made plain in an exchange at the Commons Public Accounts Committee. 

The Committee put it to the boss of one of the biggest outsourcers, Serco's Alastair Lyons, that his company was making excessive profits on the contract to tag offenders. He was accused of stashing these ill-gotten gains in a company in the USA. Margaret Hodge MP, the chair of the committee, stated that the USA company Serco Geografix's sole client was Serco Ltd to which it sold tagging hardware at a greatly inflated price:

Q47 Chair: … A Policy Exchange report—I think it was Policy Exchange—showed that the costs were 60% higher in the UK than they were in Florida. We will come later to what you did and did not do for the tagging contract, but for this contract the lack of transparency led to excess profit. To the taxpayer, that feels like a rip-off….

Q48 Chair: We are talking about the existing contract and transparency.

Alastair Lyons: If the situation was not transparent when it was let in 2005, were it to arise now with Serco being run as it is, it certainly would not happen that such a material part of the overall arrangement would not be completely transparent to the customer.

Q49 Chair: So what you are really saying is, “We ripped you off in the past, but we won’t do so in the future.”

Alastair Lyons: I don’t believe that we did rip the taxpayer off. I think, as I have said, that it was totally transparent. 

Q50 Nick Smith: Do you think it was profiteering, as Mr Pindar said earlier?

Alastair Lyons: I don’t believe it was profiteering, no.

The Serco boss didn't deny the scheme. He didn't see there was anything to deny. He simply and appallingly didn't see there was anything wrong with it. An ethical view common to the private sector that seems to infect many outsourcing deals. 

Cuts will affect many people, but they will not harm everyone. Many will do very well as the share of income moves away from one group into the pockets of others. But with even banks making hundreds of customer facing staff redundant (including Lloyds & Barclays) it's not just blue collar workers and those on low pay being sacrificed in the name of corporate profits and lower taxes. Before you decide to ignore this, remember the words of pastor Martin Niemoller:

First they came for the Socialists, and I did not speak out--
Because I was not a Socialist.

 

Then they came for the Trade Unionists, and I did not speak out--
Because I was not a Trade Unionist.

 

Then they came for the Jews, and I did not speak out--
Because I was not a Jew.

 

Then they came for me--and there was no one left to speak for me.